Knowledge that Transforms

The purpose of this paper is to characte rize a portfoli o strategy that exploits the informat ion conveyed by empirica l rejectio ns of the termstructur e Expectat ions Hypothes is.After providin g new evidence on such rejectio ns, the analysis derives optimal portfoli o position s across Treasury bills of 1 through 6 months maturiti es and gives a quantita tive assessme nt of the implied risk/ret urn tradeoff s.

A bstract-A statistical model of household automotive transportation demand is developed which nests the Koyck distributed lag model and four alternatives as special cases. These various specifications are tested with data from the Panel Study of Income Dynamics. For households who changed residence during the observation period 1973-1978, the Koyck model is rejected in favor of a model which allows price and income effects to vary freely for two years prior to settling into a geometric declining pattern. The maximum single year income impact, for these households, is in the year following the income change. Prices appear to have an initial negative impact on miles driven followed by a strong positive impact in the third year. This latter effect may be related to the acquisition of a more fuel efficient vehicle stock.

This paper highlights an issue not previously addressed in portfolio balance modelling: the impact of assetspecific expected capital gains on the composition of the household wealth portfolio. We extend the Brainard-Tobin portfolio choice model to incorporate the distinction between expected and unexpected capital gains and estimate two versions of the model. While our specification is more appealing on a theoretical basis, we were unable to distinguish clearly between the ex ante and ex post models given currently available data.

A bstract-A nonparametric time series test is applied to the buyers' and sellers' (BLS) prices collected by George Stigler and James Kindahl. Although BLS pnrces are more ngid, the two senes of pnrces are sufficiently similar in behavior dunrng two business cycles so that one can reject the null that each is generated by different stochastic processes. Moreover, each series reacts similarly in favor of the administered price hypothesis: in recessions and in the initial year of recovery, concentrated pnrces are more rigid and perversely flexible than unconcentrated pnrces, which are characterized by random movements and changes in the direction of real demand.